Financial risk refers to the extra risk stockholders bear as a result of the use of debt as compared with the risk they would bear if no debt were used.

Question

Quizplus · Accepted Answer

This statement is true. Financial risk is the risk that stockholders face due to the use of debt, which increases the company's leverage and can lead to higher financial costs, potential default on payments, and ultimately a decrease in stock value. Without debt, stockholders would face less financial risk.

Financial Risk Refers to the Extra Risk Stockholders Bear as a Result